FOREIGN EXCHANGE MANAGEMENT ACT, 1999

INTRODUCTION:

With the objective of facilitating external trade and payments and for promoting the
orderly development and maintenance of foreign exchange markets in India.

FEMA basically divided into 8 parts:

 Introduction
 Charging Sections
 Current Account
 Capital Account
 FDI
 Direct Investment outside India
 Export of Goods and Services
 Adjudication and Appeals

The important features: (Introduction)

The Foreign Exchange Management Act (FEMA) was an act passed in the winter
session of Parliament in 1999, which replaced Foreign Exchange Regulation Act.
(FERA).
This act seeks to make offences related to foreign exchange civil offences. It extends to
the whole of India.
The Foreign Exchange Regulation Act (FERA) of 1973 in India was replaced on June
2000 by the Foreign Exchange Management Act (FEMA), which was passed in 1999.
The FERA was passed in 1973 at a time when there was acute shortage of foreign
exchange in the country. It had a controversial 27 years stint during which many bosses
of the Indian corporate world found themselves at the mercy of the Enforcement
Directorate. Moreover, any offence under FERA was a criminal offence liable to
imprisonment. But FEMA makes offences relating to foreign civil offences.
FEMA had become the need of the hour to support the pro- liberalisation policies of the
Government of India. The objective of the Act is to consolidate and amend the law
relating to foreign exchange with the objective of facilitating external trade and
payments for promoting the orderly development and maintenance of foreign exchange
market in India. FEMA extends to the whole of India. It applies to all branches, offices
and agencies outside India owned or controlled by a person, who is a resident of India
and also to any contravention there under committed outside India by two people whom
this Act applies.
The Main Features of the FEMA:
The following are some of the important features of Foreign Exchange Management
Act:
i. It is consistent with full current account convertibility and contains provisions for
progressive liberalisation of capital account transactions.
ii. It is more transparent in its application as it lays down the areas requiring
specific permissions of the Reserve Bank/Government of India on
acquisition/holding of foreign exchange.
iii. It classified the foreign exchange transactions in two categories, viz. capital
account and current account transactions.
iv. It provides power to the Reserve Bank for specifying, in consultation with the
central government, the classes of capital account transactions and limits to
which exchange is admissible for such transactions.
v. It gives full freedom to a person resident in India, who was earlier resident
outside India, to hold/own/transfer any foreign security/immovable property
situated outside India and acquired when s/he was resident.
vi. This act is a civil law and the contraventions of the Act provide for arrest only
in exceptional cases.
vii. FEMA does not apply to Indian citizen’s resident outside India.
Object of the Act:

> To facilitate and promote:

(a) External trade and payments
(b) Development of foreign markets in India
Note:
 Controlling Authority: RBI
 Implementing Authority: Directorate of Enforcement
  Section 46: Empowers Central Government to make rules
 Section 47: Empowers RBI to make Regulations
Important Definitions: Under Section 2
 Authorised Person 2(c)
 Foreign Exchange 2(n)
 Foreign Security 2 (o)
 Person resident in India 2(v)
 Person resident outside India 2(w)
 Repatriate to India 2(y)
 Non- Resident Indian (Explained)
 Person of Indian origin (Explained)

Administrative Set-up
 The Central Government has been empowered under Section 46 of the
FEMA to make rules to carry out the provisions of the Act.
 Section 47 empowers RBI to make regulations to carry out the provisions of
the Act and the rules made thereunder.
 Section 41 provides that the Central Government may, from time to time, give
to the RBI such general or special directions as it thinks fit, and the RBI shall
comply with such directions.
 Thus, ultimately the RBI has been charged with the powers as well as the
responsibility to administer foreign exchange in India.
Authorised Person Section 2(c)
It means:
 Authorized dealer
 Money changer
 Off-shore banking unit or
Any other person for the time-being by RBI to deal in
 Foreign exchange or
 Foreign Securities
While the RBI has the authority to administer foreign exchange in India, it is recognized
that it cannot do so by itself. Foreign exchange is received or required by large number
of exporters and importers in the country. It would be impossible for the RBI to deal with
them individually. Under section 10, provision has been made enabling the RBI to
authorize any person to be known as authorized person to deal in foreign exchange or
in foreign securities, as an authorized dealer, money changer or off-shore banking unit
or in any other manner as it deems fit.
Categories of Authorized Dealer under FEMA

Category Entities Permitted Activities

Authorised Dealer – Commercial Banks, State All current and capital
Category I Co-op Banks, Urban Co- account transactions as
op Banks per RBI directions issued
from time to time
Authorised Dealer- Upgraded FFMCs, Coop Specified non-trade
Category II Banks, Regional Rural related current account
Banks (RRBs), others transactions and all
activities permitted to
FFMC
Authorised Dealer – Select Financial and other Transactions incidental to
Category III institutions the foreign exchange
Full Fledged Money Department of Post, Purchase of foreign
Changers (FFMC) Urban Co-op Banks, exchange and sale for
Other FFMC private and business
visits abroad.
A Full – Fledged Money Changers

Every company which intent to do a forex currency exchange activity or money

changing activity in India have to obtain a Full Fledged Money Changer License
from Reserve Bank of India.

Reserve Bank of India annually publishes guidelines for Full Fledged Money Changer’s
vide a master circular on Memorandum of Instruction on Money Changing Activities. It is
required to follow this circular and provision of Foreign Exchange Management Act,
1999 by every FFMC license holder.

Can undertake both purchase of foreign exchange and sale transactions with the public
for private and business visits abroad.

Departments of posts, urban cooperative banks and others are recognized as full –
fledged money changers.

Company which are registered under the Companies Act, 2013 are eligible to apply for
the FFMC license in India

Conditions required to be fulfilled to apply for FFMC License in India:

· Company should be registered under Companies Act 2013 or any other act such as
companies Act, 1956 with Registrar of Companies.

· Company should have a minimum net owned fund of Rs.25 lakhs to apply for a single
branch license and Rs.50 lakhs for a multiple branch license.

· Money Changing Activity should be the main activity mentioned in the object clause of
the company.

· There should not be any case pending against the company with Department of
enforcement of Department of Revenue Intelligence.

Companies having a minimum net owned fund of Rs.10 lakhs and main object clause of
the company is money changing business can obtain a franchise license from an
existing FFMC. According to master circular of RBI, franchisee is allowed do only
restricted money changing activities.

For this purpose, an application form along with the necessary documents is required to
be submitted to the foreign exchange department of the regional office of Reserve Bank
of India where the registered office of the company is situated.

Required Documents

· Application form as per Annexure II prescribed by the Reserve Bank of India Master
Circular on Memorandum of Instruction on Money Changing Activities

· Copy of Incorporation Certificate of the Company

· Copy of Commencement of the Business of the Company

· Copy of the last three years Audited Balance Sheet and Profit and Loss account

· Statutory Auditor Certificate of Net Owned Funds as on the date of application

· Copy of Memorandum of Association and Article of Association containing the main

object clause of money changing business

· Customer Information Report from the Bank. It Should be a Confidential Report

addressed to the RBI in a sealed cover for the bank and all the key management
personal

· Certified Copy of the Board Resolution to undertake money changing activity and to
apply for the FFMC License with RBI

· A declaration that no proceeding against the company or any of the directors have
been initiated by the Department of Enforcement or Department of Revenue Intelligence

· A declaration that a proper policy frame work will be placed for Anti Money
Laundering, Know Your Customer-KYC and Combating the Financing Terrorism-CFT as
per the guidelines issued by the RBI and as amended from time to time before
commencement of operation and after obtaining the FFMC license from RBI

This license is required to be renewed every year by providing the required documents
to the Reserve Bank of India.

Foreign Exchange Dealers’ Association of India (FEDAI)

FEDAI was established in 1958 as an association of all authorized dealers in India.
DEFINITION of 'Foreign Exchange Dealers Association Of India - FEDAI'
An association of banks specializing in the foreign exchange activities in India. The
Foreign Exchange Dealers Association of India, which was created in 1958, regulates
the governing rules and determines the commissions and charges associated with the
interbank foreign exchange business.

Association Of India - FEDAI'

FEDAI determines many of the rules that overlook the day-to-day forex transactions in
India. In addition to rule setting, FEDAI assists member banks by acting as
an advisor and assists with the training of personnel. The association is responsible for
accrediting India's foreign exchange brokers and announcing the exchange rates to its
member banks.

Functions of Foreign Exchange Department

Banks buy and sell foreign exchange from and to the public. To carry out this function,
banks have to keep sufficient funds/stocks of foreign exchange.

The foreign exchange department is also called the International Banking Division.

Following are the functions of the foreign exchange department:

1.Financing exports:

2. Financing Imports:

3. Remittance Facilities:
4. Dealings in Foreign Exchange;

5. Furnishing Credit Information:

Foreign Exchange Section 2 (n)

It means foreign currency and includes the following:

1. Deposits, credits and balance payable in foreign currency;

2. Drafts, travellers’ cheque, letters of Credit or bill of exchanges

 Drawn in Indian Currency but payable in foreign currency and

 Drawn outside India but payable in Indian Currency.

Foreign Security Section 2 (o)

It means any security in the form of

 Shares
 Stocks
 Bonds
 Debentures or any other instrument
Denominated or expressed in foreign currency and includes:
 Security expressed in foreign currency but where redemption or return is
payable in Indian currency.

Person Section 2(u) (Different than I.T. Act)

It includes:

 Any individual

 HUF, Company, firms

Any agency, office or branch owned or controlled by such persons
  It includes any other artificial person
Person resident in India (Section 2 (v)
It means the following:
1) A person residing in India for more than 182 days (during preceding financial
year)
But does not include the following: (Exceptions)
a) Person who has gone out of India or who stays outside India for:
1) Employment outside India
2) Business or vocation outside India.
3) Any other person, indicates his intention to stay outside India for an uncertain
period.
b) Person who has come to India or who stays in India for the purpose other than
for:
1) Employment in India
2) Business or vocation in India
3) Any purpose in such circumstances as would indicate his intention to stay in
India for an uncertain period,
2) Any person or body corporate registered or incorporated in India.
3) An office, branch or agency established
a) In India (but owned or controlled by a person resident outside India)
b) Outside India (but owned or controlled by a person resident in India)
Person Resident Outside India (Section 2 (u)
It means who is not resident in India.
Repatriate to India (Section 2(y)
It means;

 Selling

 Holding

 Use
 Of realized foreign exchange in following way

 Selling to an authorized person in India in exchange of rupees.

 Holding in an account with an authorized person in India to the extent

permitted by RBI and

 Using for the discharge of a debt or liability denominated in foreign exchange.

Non- Resident Indian

It means a person resident outside India who is

 A citizen of India or

 A person of Indian origin

Person of Indian Origin

It means:

An individual not being a citizen of

 Pakistan (or)

 Bangladesh

1) Who at any time held an Indian Passport or

2) Who or either of whose parents or grandparents were the citizen of India

3) Who is the spouse of

 An Indian citizen or

 who is spouse of an Indian citizen or spouse of person referred to in 1 and 2

above
Part -II

Charging Sections Section 3 and 4 (Prohibitions under section 3 – dealings)

No person shall-

1) Deal in or transfer any foreign exchange or foreign security to any person.

2) Make payments to or for person resident outside India. (PRO)

3) Receive any payment on behalf of any person outside India (PRO) in any
manner;

4) Enter into any financial transactions in India for acquisition or transfer of any
asset outside India

Except

 As otherwise provided in the Act, Rules or Regulations or

 With the general or special permission of the RBI.

Section 4: Holding of Foreign exchange, foreign security and Immovable property.

No person resident in India (PRI)

Shall acquire, hold, own, possess or transfer

 Any foreign exchange

 Any foreign security

 Any immovable property situated outside India

Except
 As otherwise provided in the Act, rules or regulations.

Rules and Regulations

(1) Possession and retention of foreign exchange and foreign coins

i) Authorised Person can retain or possess foreign currency and coins

without any limit

ii) Any person can possess foreign coins without limit

iii) A person resident in India can retain foreign exchange upto $2000 or its
equivalent in aggregate in the following cases:

 If was acquired as payment for services or honorarium or gift while (on a visit
out of India)

 If was acquired from any person resident outside India.

 If it represents unspent amount of foreign exchange.

iv) A person resident in India (but not permanently resident in India) may
possess foreign exchange without any limit

 If it was acquired, held or owned by him when he was resident outside India
and

 He has brought into India in accordance with the prescribed regulation.

Note: (Not permanently resident) means a person resident in India

 For employment of a specified duration (irrespective of length) or

 For a specific job or assignment, the duration of which does not exceed 3
years.
Receipts from or Payment to a person resident outside India

Receipts: any person can receive any payment in any of the following modes:

1). Payment in rupees by person residing outside India during his stay in India out of his
rupee funds.

2) Payment made by means of a cheque drawn on a Bank situated outside India or a

bank draft or traveller’s cheque issued outside India. If it is foreign exchange, it should
be sold to an authorized dealer within 7 days of the date of receipt.

3) Payment made in foreign currency notes directly from out of India. The foreign
exchange should be sold to an authorized dealer within 7 days of the date of the receipt.

4) Payment by means of a postal order issued of Post office outside or Postal order
issued by such office.

Payments

A person resident in India can make the following payments in rupees;

1) Towards meeting expenses on account of boarding, lodging and services related

thereto or travel to and fro and within India of a person resident outside India who
is on a visit to India.

2) To a person resident outside India by means of a crossed cheque or draft as a

consideration for purchase of gold or silver in any form imported by such person
in accordance with the law.

Payments through International Credit Cards:

PRI may make payments if payments is made in conformity with the provisions of FEMA
and foreign Trade Policy.

Payments to part-time directors

A company incorporated in India can make payment in rupees to its part-time directors
who is resident outside India he is on a visit to India for the company’s work entitle to
payment or fees.

PART III

Current Account Transactions (Section 2(j) (CAT)

# Dealing in Current Account Transactions (Section 5)

# FEMA Rules 2000

 Rule 3 – Prohibited CAT Schedule- I

 Rule 4 – prior approval of Central Government Schedule- II

 Rule 5- Prior Approval of RBI Schedule – III

Definition of Current Account Transaction (Section 2(j))

Means a transaction other than a Capital Account Transactions and includes:

 Payments due in connection with foreign trade, other current business,

services and short-term banking and credit facilities in ordinary course of
business.

 Payments due as interest on loans and as net income from investments,

 Remittances for living expenses of parents, spouse and children residing

abroad.
  Expenses for foreign travel, education and medical care expenses of parents,
spouse and children.

Route for Drawal of Foreign Exchange

According to RBI foreign Exchange can be drawn from any authorized dealer by
the General Permission Route or Prior Approval Route.
Release of foreign exchange under General Permission by Authorised Dealers

S.No. Particulars Limitations

1. Private visit to any country (except USD 10,000 or its equivalents in

Nepal and Bhutan) one year for one or more private
visit.

2 Gift/donations per remitter/donor Gift/Donations are comes under

liberalized Remittance Schemes of
USD 1,25,000 for resident
individuals. Remittance should not
exceed USD 1,25,000 during a
particular FY

3 Donations by Corporate 1% of the foreign exchange

earnings during the previous three
FY or USD 5 million, whichever is
less, for a specified purpose

4 Going abroad for employment USD 1,00,000 one time only

5 Remittance facility for emigrations USD 1,00,000 or the amount

prescribed by country of emigration
not exceeding USD 1,00,000 one
time only.

6 Remittance for maintenance of close Net salary (after deduction of tax,

relatives abroad PF and other deduction) of a person
who is resident but not permanent
resident in india and citizen of
foreign state other than Pakistan.
Or
USD 1,00,000 per year per recipient
in all other cases

7 Business Travel Abroad USD 25000 per trip respective of

stay
8 Attending conference or specialized USD 25000
training

9 Meeting expenses of Medical USD 1,00,000

treatment

10 Maintenance expenses of a patient USD 25000

going for medical treatment of
medical checkup abroad

11 Studies abroad USD 1,00,000 per academic Year or

estimation from the Institution
abroad whichever is higher.

12 Meeting expenses of accompanying USD 25000

as attendance to a patient going
abroad for medical treatment or
medical checkup

13 Commission to agent abroad for USD 25000 or 5 % of inward

selling of residential flats or remittance per transactions
commercial plot in India whichever is higher

14 Consultancy services from outside USD 1 million per project to USD 10

India million per project (in case of
infrastructure project)
In all other case USD 1 million will
be continuing.

15 Reimbursement of pre-incorporation 5% of the investment brought into

expenses India or USD 100,000 whichever is
higher,

16 Remittance for use and/or Purchase Freely allow without approval of RBI
of Trade mark

17 Remittance for securing Insurance Freely allow

for Health from a company abroad

18 Remittance of royalty and payment Freely allow without any prior

of lump sum fee under the technical approval of RBI
collaboration agreement

19 Release of exchange for medical Extent of USD 1,00,000 without any

treatment outside India when a hassles and any loss of time on the
person has fallen sick after basis of self declarations
 proceeding abroad

20 Small Value Remittance Up to USD 25000 (form A2)

Dealing in CAT (Section 5)

Any person may sell or draw any foreign exchange to or from an authorized person for
current account transaction.

However, the Central government, may

 Impose reasonable restrictions

 In the public interest

 In consultation with the RBI by making the appropriate rules.

Accordingly, the Central Government has made Foreign Exchange Management

(Current Account Transactions) Rules, 2000

Current Account Transactions

RULE 3 – Prohibited Current Account Transactions

SCHEDULE I RULE 3

4
[Transaction] which are prohibited]

(See Rule 3)

1. Remittance out of lottery winnings.

2. Remittance of income from racing/riding, etc., or any other hobby.

3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football
pools, sweepstakes etc.

4. Payment of commission on exports made towards equity investment in Joint

Ventures/Wholly Owned Subsidiaries abroad of Indian companies.

5. Remittance of dividend by any company to which the requirement of dividend

balancing is applicable.

5
[6. Payment of commission on exports under Rupee State Credit Route, except
commission up to 10% of invoice value of exports of tea and tobacco.]

7. Payment related to "Call Back Services" of telephones.

8. Remittance of interest income on funds held in Non-resident Special Rupee Scheme

a/c.

Rule 4 SCHEDULE II (Approval of Central Government)

1
[Transactions which require prior approval of the Central Government]

(See Rule 4)

Ministry/Department of Govt,
Purpose of Remittance of India whose approval is
required

Ministry of Human Resources

1. Cultural Tours Development (Department of
Education and Culture)

2. 2[Advertisement in foreign print media for the purposes

Ministry of Finance,
other than promotion of tourism, foreign investments and
Department of Economic
international bidding (exceeding US$ 10,000) by a State
Affairs]
Government and its Public Sector Undertakings.
 Ministry of Surface Transport
3. Remittance of freight of vessel charted by a PSU
(Chartering Wing)

4. Payment of import 3[through ocean transport] by a Ministry of Surface Transport

Govt. Department or a PSU on c.i.f. basis (Chartering Wing)
(ie., other than f.o.b. and f.a.s.
basis)

Registration Certificate from

5. Multi-modal transport operators making remittance to
the Director General of
their agents abroad
Shipping

4
Ministry of Information and
[6. Remittance of hiring charges of transponders by
Broadcasting
(a) TV Channels
Ministry of Communication
(b) Internet service providers
and Information Technology]

7. Remittance of container detention charges exceeding Ministry of Surface Transport

the rate prescribed by Director General of Shipping (Director General of Shipping)

8. 5[***] 5
[***]

9. Remittance of prize money/sponsorship of sports

Ministry of Human Resource
activity abroad by a person other than
Development (Department of
International/National/State Level sports bodies, if the
Youth Affairs and Sports)
amount involved exceeds US $ 100,000

10. 6[***]

Ministry of Finance (Insurance

11. Remittance for membership of P & I Club
Division)

SCHEDULE III (Approval of RBI)

(See Rule 5)

1. 1[***]
 2
[2. Release of exchange exceeding US$ 10,000 or its equivalent in one financial year
for one or more private visits to any country (except Nepal and Bhutan).

3. Gift remittance exceeding US$ 5,000 per financial year per remitter or donor other
than resident individual.]

3
[4. (i) Donation exceeding US$ 5,000 per financial year per remitter or donor other than
resident individual;

(ii) Donations by corporate, exceeding one per cent of their foreign exchange earnings
during the previous three financial years or US$ 5,000,000, whichever is less, for,-

(a) creation of Chairs in reputed educational institutes;

(b) to funds (not being an investment fund) promoted by educational institutes; and

(c) to a technical institution or body or association in the field of activity of the donor
company.

Explanation.-For the purposes of these item numbers 3 and 4, remittance of gift and
donation by resident individuals are subsumed under the Liberalised Remittance
Scheme.]

5. Exchange facilities exceeding US $ 4[ 100,000] for persons going abroad for
employment.

6. Exchange facilities for emigration exceeding US $ 4[ 100,000] or amount prescribed

by country of emigration.

5
[7. Remittance for maintenance of close relatives abroad,

6
[(i) exceeding net salary (after deduction of taxes, contribution to provident fund and other
deductions) of a person who is resident but not permanently resident in India and-

(a)  is a citizen of a foreign State other than Pakistan; or

(b)  is a citizen of India, who is on deputation to the office or branch or subsidiary or joint
venture in India of such foreign company,]

(ii)  exceeding US$ 4[100,000] per year per recipient, in all other cases.

Explanation : For the purpose of this item, a person resident in India on account of
his 7[employment or deputation of] a specified duration (irrespective of length thereof) or
for a specific job or assignment, the duration of which does not exceed three years, is a
resident but not permanently resident.]

8. Release of foreign exchange, exceeding US $ 25,000 to a person, irrespective of

period of stay, for business travel, or attending a Conference or specialised training or
for maintenance expenses of a patient going abroad for medical treatment or check-up
abroad, or for accompanying as attendant to a patient going abroad for medical
treatment/check-up.

9. Release of exchange for meeting expenses for medical treatment abroad exceeding
the estimate from the doctor in India or hospital/ doctor abroad.

10. Release of exchange for studies abroad exceeding the estimates from the institution
abroad or US $ 1[100,000] 2[per academic year], whichever is higher.

3
[11. Commission, per transaction, to agents abroad for sale of residential flats or
commercial plots in India exceeding US $ 25,000 or 5% of the inward remittance
whichever is more.]

12. 4[***]

13. 4[***]

14. 4[***]
5
[15. Remittances exceeding US$ 10,000,000 per project, for any consultancy services
in respect of infrastructure projects and US$ 1,000,000 per project for other consultancy
services procured from outside India.

Explanation.-For the purposes of this item number 'infrastructure project' is those

related to-

(i) Power,

(ii) Telecommunication,

(iii) Railways,

(iv) Roads including bridges,

(v) Sea port and airport,

(vi) Industrial parks, and

(vii) Urban infrastructure (water supply, sanitation and sewage).]

16. 6[***]

7
[17. Remittances exceeding five per cent of the investment brought into India or US$
1,00,000 whichever is higher, by an entity in India by way of reimbursement of pre-
incorporation expenses.]

18. 8[***]

CAPITAL ACCOUNT TRANSACTIONS

Definition under section 2(e) read with section 6

Capital Account Transaction means a transaction which alters the

  Assets and liability including contingent liabilities outside India of person
resident in India or

 Assets and liability in India of a person resident outside India.

Note: Capital Account transactions relate to movement of capital, Includes transactions

in property, lending and borrowing money and control of RBI over Capital account
transactions (section 6)

Common Capital Account Transactions:

(i) Transfer or issue of any foreign security by a resident;

(ii) Transfer or issue of any security by a non-resident;

(iii) Transfer or issue of any security or foreign security by any branch, office or
agency in India of a non-resident;

(iv) Any borrowing or lending in foreign exchange;

(v) Any borrowing or lending in rupees between a resident and non-resident;

(vi) Deposits between residents and non-residents;

(vii) Export, import or holding of currency or currency notes;

(viii) Transfer of immovable property outside India, other than by lease upto 5
years, by a resident;

(ix) Acquisition or transfer of immovable property in India, other than a lease not
exceeding 5 years, by a non-resident; and

(x) Giving of a guarantee in respect of any debt, obligation or other liability

incurred (a) by a resident and owned to a non-resident, or (b) by a person
resident outside India.
Regulations of Capital Account Transactions (Section 6)

RBI may, in consultation with the Central Government, specify the permissible capital
account transactions and the limits up to which foreign exchange will be allowed for
such transactions by making the appropriate regulations.

Accordingly, the RBI has made Foreign Exchange Management (Permissible Capital
Account Transactions) Regulations, 2000.

(I) Permissible Capital Account Transactions of Persons Resident In India (PRI)

A person resident in India may enter into any of the following capital Account
Transactions subject to RBI regulations made in this regard:

(a) Investments by PRI in foreign security.

(b) Foreign currency loans raised in India and abroad by PRI

(c) Transfer of immovable property outside India by PRI

(d) Guarantee issued by PRI in favour of a PRO.

(e) Export, import and holding of currency.

(f) Loans and overdrafts by a person resident in India from a PRI.

(g) Maintenance of foreign currency accounts in India and outside India by a

PRI.

(h) Taking out of insurance policy by a person resident in India from an

insurance company outside India.

(i) Loans and overdrafts to a PRO.

(j) Remittances of capital assets from outside India to India.

 (k) Sale and purchase of;

(i) Foreign derivatives in India and abroad and

(ii) Commodity derivatives abroad. (not in India).

(II) Permissible Capital Account Transactions of person resident outside India (PRO)

A person resident outside India may enter into any of the following capital account
transactions subject to RBI regulations made in this regard:

(a) Investment in securities in Indian body corporates.

(b) Investment in the capital of a firm, proprietorship concern or an association of

Person in India.

(c) Acquisition and transfer of immovable property in India.

(d) Guarantee by a person resident outside India in favour of, or on behalf of, a
person resident in India.

(e) Import and export of currency from/in India by PRO.

(f) Deposits between a person resident in India and a person resident outside India.

(g) Maintenance of foreign currency accounts in India.

(h) Remittance of capital assets from India outside India.

Capital Account Transactions which prohibits for PRO ie prohibited Capital Account
Transactions:

Unless otherwise provided in the Act, rules or regulations made thereunder, no PRO
shall make investment in India in any entity which is engaged in any of the following
activities:
 (1) Chit Fund

(2) Nidhi Company

(3) Agricultural or Plantations activity

(4) Real estate business or construction of farm house.

(5) Trading in Transferable Development Rights. (TDR)

What is TDR?

TDR means making available certain amount of additional built up area in lieu of the
area relinquished or surrendered by the owner of the land, so that he can use extra built
up area either himself or transfer it to another in need of the extra built up area for an
agreed sum of money.

Purpose:

 Acquisition of land is sometimes very costly, lengthy and complicated.

 Road widening, building schools, playgrounds, etc.

Karnataka Town Planning Act, 1961 inserted section 14B for TDR rights.

Example: In a plot area of 500 sqm at road ‘C’ where floor area is 0.75 sqm and
development right of 150 sqm originated at road ‘A’ is transferred.

Calculation;

Plot area: 500 sqm

Permissible floor area: 0.75 sqm

Built up floor area: 500 * 0.75= 375 sqm

Additional floor area to be transferred for

Road ‘A’ 150 sqm

Total built up area: 375+150= 525 sqm

CONTRAVENTIONS AND PENALTIES

Section 13 Imposing penalty by Adjudicating Authority

 If any person contravenes provisions of Act, Rules, Regulations or

Notifications:

Penalty:

(a) If amount is quantifiable – upto 3 times the amount.

(b) If amount is not quantifiable- upto 2 lacs

Or Rs. 5000/- per day till contravention continue.

Section 14- Enforcement of the orders of Adjudicating Authority (Powers to recover

arrears of penalty) (added in 2016 Amendment)

 Adjudicating Authority may by order in writing, authorized officers of

Enforcement, not below rank of Assistant Director to recover arrears of
penalty

 Who fails to make full payment within 90 days from the date of service of
notice for payment of penalty amount.

 If fails to make penalty within 90 days:

Civil imprisonment
 (a) If demand of an amount exceeding rupees one crore- up to three years,
and

(b) In any other case- up to six months.

In addition to the penalty, the Adjudicating Authority may confiscate money, security of
the person detained.

Section 15: Power to Compound Contravention

 Any contravention under section 13 may be compounded within 180 days

from the date of receipt of application by Director of Enforcement.

 Where compounded no further proceedings shall be continued or initiated

against contravention so compounded.

Compounding of offence is not available if:

 Sum involved is not quantifiable.

 Appeal is filed.

 Similar contravention is repeated within 3 years.

Adjudication and Contraventions

 Any officer authorized by Central Government will send written complaint to

Adjudicating Authority. (A.A)

 A.A will show cause notice to the accused.

 If reply send by the accused is sufficient, no further proceeding is required.

 If reply send by the accused is not satisfactory, A.A shall commence

adjudicating proceedings.
  Date of hearing shall be fixed.

 A.A shall give order.

1. No contravention of FEMA – No penalty

2. If contravention of FEMA:-

(a) Nature of contravention.

(b) Reasons for his decision.

 If there is contravention under FEMA, penalty is levied u/s 13.

(1) Upto 3 times the sum involved in contravention (if amount is quantifiable)

(2) Upto 2 lacs if amount is not quantifiable.

(3) Or Rs. 5000/- per day till contravention continues.

 If penalty not paid within 90 days, there is civil imprisonment:

(1) Imprisonment 3 years if penalty is > 1 crore.

(2) Imprisonment for 6 months in any other case.

Appeal before Special Director (Section 17)

 If penalty imposed by the A.A. is paid by the accused, he is released else appeal
is filed before the Special Director under section 17 within 45 days of the order of
the A.A.
 Appeal against the order of the A.A. can also be filed before Director of
Enforcement, Special Director of Enforcement or Additional Director of
Enforcement. If not satisfied by the order, appeal can be filed before the Special
Director.

Appeal before Appellate Tribunal (Section 19)

If not satisfied by the order of the Special Director, appeal can be filed before the
Appellate Tribunal within 45 days of the order of the Special Director.

(1) Before filing an appeal it is mandatory to deposit penalty with Appellate Tribunal.
(2) Can be refunded if waived by the Appellate Tribunal.

Appeal before High Court. (Section 35)

Still not satisfied by the order of the Appellate Tribunal, an appeal can be filed before
the High Court within 60 days of the order of the Appellate Tribunal.